Study 3 – The Risk Management Process Continued
1. What factors affect the selection of the best risk management technique for risk exposures? (p. 2)
Once exposures have been identified and analyzed and alternative risk management techniques formulated to minimize the effects of those exposures, the best apparent technique or combination of techniques for dealing with each exposure is chosen.
Treatment methods will be combined and integrated to effectively and economically control exposures. Each client is unique and must be examined independently to assess the appropriate choice for it. But the future is uncertain, the choice made can only reflect what appears to be the best technique.
2. Described the “insurance method” approach to the purchase of insurance? (p. 2)
One approach to technique selection which was once very widely used was the insurance method.
The potential client asked the producer or the insurer to price all possible insurance coverages and to assist in prioritizing the various kinds of insurance into three categories: essential, desirable and available. The buyer would then start with the essential coverages and continue to buy until funds budgeted for insurance were used up.
3. What is the “minimum expected loss method”? (p. 3)
The technique wherein the cost of each possible risk management technique is calculated and the results of applying each technique to potential losses is estimated. The program that best meets the organization’s objectives with the lowest overall cost is the one which will be chosen.
4. What is the major problem associated with the minimum expected loss method? (p. 3)
The major problem in using this approach is that loss costs are often difficult to predict with certainty and the effect of major capital expenditures for loss control must be adjusted to the short term.
5. Review the Ten-Year Projection of the BonTon Department Store. (p. 3)
6. Review the Yummy Ice Cream Company case study. (p. 3)
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